Italy catches the tech bug

CBS.MarketWatch.com

MILAN (CBS.MW) -- U.S. investors may have had turkeys on their minds Thursday but their Italian counterparts certainly didn't. A tech company run by the man dubbed "Italy's Bill Gates" caused pandemonium as its IPO was suspended due to excessive demand.

"We've had lots of buy orders and very few sell orders (so) our books aren't balanced and it's impossible to open the price," said Camilla Pedraglio, a Borsa Italia spokeswoman.

Wednesday, Finmatica shares were suspended for the whole session after they were quoted 500 percent above the offer price.

Finmatica, which was founded by its CEO Pier Luigi Crudele in a basement during the 1970s, offered 13.5 million shares or 30 percent of its total share capital in the IPO. An over-allotment, or greenshoe, offers at least another 4.5 million shares.

For the first half of 1999, Finmatica posted pre-tax profit of $711 million (13.5 billion lira), up 366 percent from $153 million (2.9 billion lira) in the same period of 1998. First half revenue rose 63 percent to 42 billion lira.

Tech fever sweeps Italy

The startling debut of Finmatica highlights the tech fever currently sweeping through Italy. This is most evident through a spate of successful IPOs on the Nuovo Mercato, Borsa Italia's market for high growth companies.

Launched in May, the Nuovo Mercato's first listing was Opengate SpA, an IT services group, on June 17. The market now comprises five companies with a total market capitalization of $2.9 billion (2.86 billion euros). Four of them floated in October. The bulk of the market cap. is made up by Tiscali SpA, a telecom and Internet company, which went public at 46 euros per share on October 27. Thursday Tiscali shares were at 185 euros meaning it now has a market cap. of roughly 2.5 billion euros.

The IPOs of the Nuovo Mercato's other companies including Opengate; Prima Industrie SpA, a laser-driven tool machinery maker; Poligrafica San Faustino SpA, a graphics multimedia group and Tecnodiffusione Italia SpA, a computer manufacturer and retailer, have also proved popular.

"The market for technology and Internet stocks globally is very favorable (at the moment) and that means there's interest in the Nuovo Mercato and quite a lot of money chasing relatively little equity," said Grahame Cook, London-based managing director and head of equity capital markets at West LB Panmure.

Tiscali's strong market performance has been put down largely to three factors. Firstly, it pioneered subscription free Internet access in Italy much as Freeserve PLC
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did in the U.K. It's now got a 15 percent share of the Italian Net market giving it 630,000 subscribers. Secondly, it's a very young, lean company. Tiscali's CEO Renato Soru at 41, is the oldest person in the 28 month old company and it has a staff of about 200, most of whom work in call centers.

Tiscali's also teamed up with former Telecom Italia chief Franco Bernabe to bid for one of the five UMTS (universal mobile telecommunications systems) -- or third generation cellular phone licenses -- which are to be auctioned in Italy during the first half of 2000. Soru says Tiscali's 1999 revenue should reach 50 billion lira.

The new Neuer Markt?

Cook says the early days of the Nuovo Mercato remind him of the beginnings of Deutsche Boerse's high growth market, the Neuer Markt. Launched in March 1997, the Neuer Market now lists 194 companies with a combined market cap. of 81.6 billion euros.

Some observers point out that although Italy has been slow to embrace new technology in the past, once it does, things really take-off. Witness the growth of cellular phone use. Cellular phone penetration in Italy has reached 43 percent of the population which places it fifth in Europe behind only Finland, Norway, Sweden and Denmark. Europe's two biggest mobile phone operators in terms of subscriber numbers -- Telecom Italia Mobile and Omnitel -- are both located in Italy. Between them they have some 24 million subscribers.

According to International Data Corp., only 5.4 percent of the Italian population was online at the end of 1998. This compares to 31 percent of Finns, 2.6 percent of Greeks and the western European average of 10.6 percent.

West LB Panmure's Cook for one, believes the Nuovo Mercato may be set to follow in the footsteps of Germany's Neuer Markt, largely because of the success of the first few listings.

"Because they've done well there's a focal point, a magnet. The same thing as the Neuer Markt is going to happen in Italy as there are the same type of entrepreneurs," Cook said.

A spokesman for the Nuovo Mercato, Massimiliano Bertolino, said Borsa Italia is expecting between 15 and 20 IPOs next year, although he said he himself wouldn't be surprised if the total's nearer 30.

Nasdaq Europe coming to town

This must make interesting news for the National Association of Securities Dealers Inc., the parent of the Nasdaq stock market, which plans to launch a European bourse based in London in the fourth quarter of 2000. See full story. Some European companies have already expressed interest in listing on Nasdaq's European offshoot. See story.

The next company set to list on the Nuovo Mercato is Gandalf Airlines in early December. According to Bertolino, two coming in early 2000 are Euphon, a multimedia and film production company, and Inet, an Internet service provider which is due to hit the market next March.

The profile of Italian tech stocks is likely to get a further boost next year when Telecom Italia SpA
TI.A, +3.48%
floats its Internet service provider, Tin.it. Telecom Italia hasn't said yet where, how much of, or when exactly it will float Tin.it, only that it will take place "within" 2000.

Tin.it is Italy's biggest Internet service provider. It has 1.2 million customers and roughly 55 percent of Italy's Internet traffic. During September, 55 million page views were registered on Tin.it's portals.

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